8/20/2010 @ 6:00AM

Long Live Analog

The world is going digital. And yet
Linear Technology
, which makes analog semiconductors, is reporting record revenues and is one of the tech industry’s most profitable companies. As the world relies on digital ones and zeros, the more it needs analog to measure light, sound, pressure and power. Forbes’ Brian Caulfield talked with Linear Chief Executive Lothar Maier about how Linear is innovating to equip future tech products.

Forbes: So the world is going digital. But analog is still one of the most lucrative parts of the chip industry. That’s a bit of a paradox. Why?

Lothar Maier: It’s an analog world. There’s no concern that digital is ultimately going to replace the analog space. What we do is we design and build analog solutions to our customer’s analog problems. And what’s happening over time is these analog problems are becoming more and more complex. Our products are becoming more and more complex. And we’re faced with providing our customers good support on solving their analog problems.

So, for example, your portable consumer device might have a digital brain. But it needs analog parts to interface with the power supply, to interface with the display, to output or input sound. Can you give me some more examples?

Any time there’s a human interface, there’s some analog product there. If it’s a portable product, it has to have some sort of power that’s portable which is usually a battery. And when you have a battery, there’s some analog product that does the power management for the battery.

Pretty much any product that uses electronics around the digital electronics will have some analog with it. And as the digital world grows, so will the analog world continue to grow as well.

Linear is a bit of a puzzle in another way. You’re one of the most profitable companies in technology. You’re a manufacturer. You outsource almost nothing. And you’re making analog products. Tell me about how this happened.

What Linear does, and what Linear does very well, is we make unique analog products. We don’t make copies of other people’s products.

All of our products are proprietary products. We have over 7,500 different products. And they’re all unique. And what we do is we try to anticipate what our customer needs are. Our design engineers in the company spend a significant part of their time traveling the world meeting with our customers–not the purchasing side of the customers, but the engineers within the customer base.

And by talking to the engineers, they’ll share with our engineers what their technical challenges are. Generally speaking, we make no products based on what the customer tells us, because when the customer tells us something they tell the same thing to all of our competitors.

What our engineers do is they take the customer’s input and then try to anticipate what the customer is going to need two, three, maybe even four years in the future. And those are the types of products that we make. And those are the types of products that really are the basis of the Linear financial success story.

Give me an example.

There are areas like power over Ethernet, all the little blue wires that hang out of the walls of buildings. For the longest period of time people used those wires strictly to move data. A number of years ago, we invented a family of products which are called Power-Over-Ethernet where not only do we deliver the data over those blue wires, but we’re able to deliver power as well.

And that’s proliferated into a whole family of products. Now many, many new network installations are using Power-Over-Ethernet so you can run a phone, you can run a PC, a security camera all over these blue wires. And those are the kinds of things that we push our engineers to think of: ideas for products that are enabling of industries or applications and even some products that are so far out there that maybe there isn’t a need for them presently.

But when we deliver these products, our customers will look at them and say, “Wow, I can design my end products around these products as well.” And that’s what we get from meeting the customers. That’s what we do from a design engineering standpoint. All of our new product ideas come through our engineers. We don’t have a new product management organization. Really, all of our new products originate from interface with our customers.

To he point where you have your engineers do some of your customer’s homework for them. They’ll send you their work for some of their trickier analog problems. Tell me about this.

Well, probably in the last five or 10 years, analog products have become much, much more complex. They used to be very simple, single function products that we made for our customers. And over the last few years, they’ve become very complex. And complimenting that is the fact that most of our customers have fewer and fewer internal analog engineering capabilities within their company.

So what happened now is the products are more complex. We have to provide our customers not just the products, [but show them] how to use them. And often times our engineers actually do the analog design portion of our customer’s products. And for us, a big strength that we have is the fact that we’ve got basically a worldwide field applications organization staffed with analog experts that really can help all of our customers around the globe.

A big issue in the industry right now is the complexity of the products and the lack of analog expertise. So we started developing products a number of years ago that are much simpler for a customer to use, where if they have a complex analog problem they need solved, we can provide them the solution already pre-done for them.

And I just happen to have some products like that. This is a micro module product. And to the customer, this thing looks just like an IC [integrated circuit]. It’s molded in plastic. It’s got contacts on the back. And from a customer standpoint, all they have to do is solder it down on a board.

Plug it in.

But what’s inside of this module is a complete solution. It’s got a number of pieces of silicon in it. It’s got all the resistors and capacitors in it. And it was designed by an analog expert. These micro modules are basically analog solutions that the customer can purchase and they don’t have to have a lot of analog expertise.